Refund Under Provisions of Income Tax Act, 1961

Section 237 of the Income Tax Act, 1961 deals with Income Tax refund of excess tax paid by the assessee. If any person or assessee satisfies the assessing officer that the amount of the tax paid by him or paid by any person on his behalf during any previous assessment year exceeds the amount with which he is properly chargeable under the act for that year, he is entitled to refund of excess amount paid.

The authority will also after considering the facts and circumstances of the case issue order for the refund of excess tax paid by the assessee. It is right of the assessee to demand excess tax paid over as tax assessed.

Section 238 : Who can claim Income Tax Refund

Generally Income Tax Refund can be claimed the person, who has paid the same but in a case of clubbing of income under provisions of Sections 60 to 64 , the refund is claimed by the person, in whose income , income of others are clubbed. In case of liquidation of a company its official liquidator or in case of death or incapacity of a person his/her legal representative will claim the refund.

Time Limit of Income Tax Refund Claim:-

If the taxpayer has to make a claim of Income Tax refund, then the claim should be made in Form No. 30. However, w.e.f., 01-09-2019, the Finance (No. 2) Act, 2019 has amended this provision to provide that the refund can be claimed only through filing of return of income within the time limit prescribed under Section 139.

Circular 9/2015 [F.NO.312/22/2015-OT], dated 9-6-2015 is issued by the Central Board of Direct Taxes (CBDT) for dealing the matters relating to applications for condonation of delay in filing returns claiming refund and returns claiming carry forward of loss and set-off thereof. This Circular is issued in suppression of all earlier Instructions/Circulars/Guidelines issued by the CBDT relating to above discussed matter of condonation. The Circular containing comprehensive guidelines on the conditions for condonation and the procedure to be followed for deciding such matters. The details in this regard (as given in said Circular) are as follows:

1. The Principal Commissioners of Income-tax/Commissioners of Income-tax (Pr.CsIT/CsIT) shall be vested with the powers of acceptance/rejection of such applications/claims if the amount of such claims is not more than Rs. 10 lakhs for any one assessment year. The Principal Chief Commissioners of Income-tax/Chief Commissioners of Income-tax (Pr.CCsIT/CCsIT) shall be vested with the powers of acceptance/rejection of such applications/claims if the amount of such claims exceeds Rs.10 lakhs but is not more than Rs. 50 lakhs for any one assessment year. The applications/claims for amount exceeding Rs.50 lakhs shall be considered by the CBDT.

2. No condonation application for claim of refund/loss shall be entertained beyond six years from the end of the assessment year for which such application/claim is made. This limit of six years shall be applicable to all authorities having powers to condone the delay as per the above prescribed monetary limits, including the CBDT. A condonation application should be disposed of within six months from the end of the month in which the application is received by the competent authority, as far as possible.

3. In a case where refund claim has arisen consequent to a Court order, the period for which any such proceedings were pending before any Court of Law shall be ignored while calculating the said period of six years, provided such condonation application is filed within six months from the end of the month in which the Court order was issued or the end of financial year whichever is later.

4. The powers of acceptance/rejection of the application within the monetary limits delegated to the Pr.CCsIT/CCsIT/Pr.CsIT/CsIT in case of such claims will be subject to Following conditions:

• At the time of considering the case under Section 119(2)(b), it shall be ensured that the income/loss declared and/or refund claimed is correct and genuine and also that the case is of genuine hardship on merits.
• The Pr.CCIT/CCIT/Pr.CIT/CIT dealing with the case shall be empowered to direct the jurisdictional assessing officer to make necessary inquiries or scrutinize the case in accordance with the provisions of the Act to ascertain the correctness of the claim.

5. A belated application for supplementary claim of refund (claim of additional amount of refund after completion of assessment for the same year) can be admitted for condonation provided other conditions as referred above are fulfilled. The powers of acceptance/rejection within the monetary limits delegated to the Pr.CCsIT/CCsIT/Pr.CsJT/CsIT in case of returns claiming refund and supplementary claim of refund would be subject to the following further conditions:

• The income of the assessee is not assessable in the hands of any other person under any of the provisions of the Act.
• No interest will be admissible on belated claim of refunds.
• The refund has arisen as a result of excess tax deducted/collected at source and/or excess advance tax payment and/or excess payment of self-assessment tax as per the provisions of the Act.

6. In the case of an applicant who has made investment in 8% Savings (Taxable) Bonds, 2003 issued by Government of India opting for scheme of cumulative interest on maturity but has accounted interest earned on mercantile basis and the intermediary bank at the time of maturity has deducted tax at source on the entire amount of interest paid without apportioning the accrued interest/TDS, over various financial years involved, the time limit of six years for making such refund claims will not be applicable.

7. The Circular will cover all such applications/claims for condonation of delay under section 119(2)(b) which are pending as on the date of issue of the Circular.

8. The CBDT reserves the power to examine any grievance arising out of an order passed or not passed by the authorities mentioned in para 1 above and issue suitable directions to them for proper implementation of the Circular. However, no review of or appeal against the orders of such authorities would be entertained by the CBDT.

Income Tax Refund in case of appeal (Section 240)

As per section 240, in a case where the Income Tax refund becomes due as a result of any order passed in appeal or other proceeding under the Act, the Assessing Officer shall, except as otherwise provided in the Act, refund the amount to the taxpayer without his having to make any claim in that behalf.

However, where –

• an assessment is set aside or cancelled and an order of fresh assessment is directed to be made, the refund, if any, shall become due only on the making of such fresh assessment.

an assessment is annulled, the refund shall become due only of the amount of the tax paid in excess of the tax chargeable on the total income returned by the taxpayer.

Interest on Income Tax refund ( Section 244A):-

Many times the taxpayer does not get the Income Tax refund in due time, in such a case he is granted interest on delayed refund. The provisions in this regard are given in section 244A. The provisions in this regard are as follows:

• Where the refund arising to the taxpayer is out of any tax deducted/collected at source or tax paid by way of advance tax, then the taxpayer shall be entitled to interest calculated at the rate of one-half percent for every month or part of a month. Interest in such a case shall be allowed for a period commencing from the 1st day of April of the assessment year to the date on which the refund is granted if the return of income is furnished on or before the due date of filing of return specified under section 139(1) otherwise interest shall be allowed from the date of furnishing of return of income to the date on which the refund is granted
• Where the refund arising to the taxpayer is out of tax paid by way of self-assessment tax then the taxpayer shall be entitled to interest calculated at the rate of one-half percent for every month or part of a month. Interest in such a case shall be allowed for a period commencing from the date of furnishing of return of income or payment of tax, whichever is later, to the date on which the refund is granted.

However, no interest shall be payable if the amount of refund is less than 10% of the tax as determined under section 143(1) or tax determined under regular assessment.

• In any other case (i.e., a case in which refund is due to reasons other than those stated above), interest shall be calculated at the rate of one-half percent for every month or part of a month. Interest in such a case shall be allowed for a period commencing from the date/dates (as the case may be) of payment of the tax or penalty to the date on which the refund is granted. The expression “date of payment of tax or penalty” means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.

Note: in cases when assessment has been reframed under provisions of sections 141(1), 143(3), 154,155. 250, 254, 260, 262 etc., the amount on which the interest was payable was increased/decreased; the interest portion will also increase/decrease accordingly. The Assessing officer may issue demand notice for recovery of excess interest paid in those cases.

The denial of interest by the department has not been made unless an opportunity is given to the assessed of hearing.

Note:

1. The interest will not be paid on TDS deducted erroneously by paying party. As decided in case of Universal Cables Limited v. At CIT [2010] 191Taxman 370(MP), the assessee has deducted tax source erroneously under Section 194A in respect of payment to IDBI, though no tax was required to be deducted from such payment. On assessee’s request, the department granted refund of the amount deducted. The court held that on such refund interest will not be available under section 244A.

2. The department cannot deny the payment of refund to the assessee on the ground that the TDS certificate in respect of TDS deducted at sources has not been submitted by the assessee within time, if taxes has been deducted and timely paid to the government.

Set-Off of Income Tax Refund Against Outstanding Tax Dues:-

Section 245; – empowers the Assessing Officer to adjust Income Tax refund due to any assessee of any assessment year against any outstanding tax due of the previous years. But no adjustment of refund against tax due will be made without giving a notice to the assessee in this regard.

If Assessing Officer has adjusted the refund against tax due without proper notice in this regard to the assessee , then it will be against the provisions of Section 245 and liable to be quashed.

Fresh intimation is required under Section 245; any notice or information under provisions of Section 141(1) is not intimation.

As decided in the case of S.S. Ahluwalia v. ITO [1996] 135 CTR (Gauhati) 225, where certain assessment had been held to be bad, the amount of tax recovered for such assessment years which become refundable cannot be retained by the department for being adjusted against tax due in respect of other assessment years.

As it is decided that an assessee cannot ask the department to adjusted amount of refund against any tax payable by him of any assessment year.

The demand of one person cannot be adjusted against refund of another person, but as decided in case of Glaxo Smith Kline Asia (P.) Ltd. V. CIT[2000] 160 (Delhi), a further implicit requirement is that the revenue will have to be satisfied that the assessee will not be in a position to satisfy the demand of tax and that for the setoff, the outstanding tax amount cannot be recovered at all.

Now a days, what we have paid as tax or TDS/TCS if any deducted or collected has been reflected in Form 26AS.

As decided in the case Court on its own motion v. CIT [2012] 210 taxman452 (Delhi), Revenue cannot make adjustment contrary to procedure prescribed under Section 245 based on the wrong data uploaded by the Assessing Officer. One the amount is correctly and rightly reflected in Form 26AS, small or technical mismatch in return should not be make a ground to deny credit of amount paid. In cases TDS data reflected in Form 26AS requires rectification, notice should be issued to the assessee to revise or correct mistake and only if necessary rectification or correction is made, an order under section 143(1) should be passed and demand should be raised.